More than any other place in the world, Detroit has the greatest inventory of quality homes at huge discounts. Almost every block in the city has at least one vacant house. If you couple this with the substantial pent-up demand for quality homes, you have the perfect scenario for rebuilding a community and creating great wealth. The question is: Why aren’t “we” restoring our neighborhoods?

We can see that certain areas are booming with new construction, home restorations and good sales; specifically, Midtown, Corktown, East Jefferson and the Woodward Corridor. How about NW or NE Detroit? Neighborhood streets like Steel/Sussex/Forrer or Carlisle/Lakepointe/Somerset, have very little going on….. WHY?

I am the first to admit that the going can be tough. The students at Strather Academy have acquired more than 100 houses, and we have restored over 80% of them. Some were lost due to vandalism by scrapper thieves and non-paying tenants who feel that they can have landlords over a barrel. The “evict me” and then “suffer the consequences” threat that come with some tenants and squatters have many people not interested in being a landlord or rehabber. This is not hard to rationalize.

Notwithstanding the daunting circumstances we face, we all must play a role in the restoration of our communities. Being a good neighbor and playing a role could mean keeping an eye on a vacant house, cutting the grass or even cleaning out a vacant structure. We ALL should play a role. Let’s dig deeper into “why” we aren’t restoring our neighborhoods. Why are we letting others from all over the world restore our communities or restated … to eat our lunch at our own kitchen table while we sit back and watch?

I think the top reasons that we tell ourselves are:

I do not know how to find the owners of the vacant houses

I do not want to be a landlord

I do not want to be ripped off while rehabbing

I do not have any cash or credit

I do not know how and where to start

Admittedly, all of these are good answers. However, they are not good enough. If we, as responsible adults, do not rescue our blocks, who will? Dan Gilbert? (although Dan is doing a super job downtown). Do we need a Savior? What will we say to our children and grandchildren when they ask, “Did you benefit from the great recession? Did you buy any real estate or help bring back the community?”

I would rather leave this world than watch Detroit continue down this current path and be taken over by investors all over the world. I will go anywhere and talk to anybody or any organization (with Detroit DNA) that wants to be involved in the redeveloping of the “D” and restoring our pride. The topic this week is “Rebuilding Detroit - Block by Block.”

Consider this; many people will live in a tough area, if the block is stable. It could be unwise to restore a single house on a block that has several vacant houses in need of repair. Recently, I drove down several Holmur Streets between Dexter and Grand River. I found one of the blocks so appealing that I circled and drove the block a second time. I imagined that I could live on that block; notwithstanding the fact that the block was surrounded by other blocks I would not even consider moving on. Your measuring stick should be: Will a single mom move her family into this house on this block? Will she feel safe or will she be afraid? I feel a single mom would move on that block on Holmur. Go check it out. I offer this as evidence you can restore a community block by block.

I imagine from the beauty and stability of Holmur Street, that one person recruited others who all joined together and kept the block stabilized through these turbulent times. Whoever you are, God bless you.

For those interested in learning how to restore your block or neighborhood, you can join as follows:

The psychological, regulatory, and economic environment have created magnificent Moments Detroit and a stairwell to financial freedom for those who believe. Consider this and act before it is too late;

The current market value of homes in Northwest and Northeast are less than 50% of their 2008 value but they are ready to explode. High quality homes in northwest Detroit (except Rosedale Park) and Northeast Detroit have barely budged in the last 10 years; they are selling between 45-60% of their 2008 value. This will not last forever, chances are the depressed values will be gone before the end of next year. Ride the streets in these areas and hot Zip Codes where you live, work, play or pray and find the deals. See paragraph viii below. Write down the addresses and look the owners up from whitepages.com or spokeo.com. Enter (SA) purchase agreements and flip or acquire the deals.

Rents are equal to or greater than 2008. Although home market values are not back to normal, rents have fully bounced back to 2008 levels. This is the first time in recent history you can buy a home for the full market value, rent it and have a substantial cash flow. Acquire residential income properties; 1-4 units are great. Today there is more % upside potential in residential 1-4 units than apartments.

Demand is high. There is a serious shortage of homes to move into as a tenant or homeowner. Even Section 8 housing voucher recipients are standing in long lines waiting for a nice place to move into. Cultivate a following of people that need homes. A great place to start is www.gosection8.com. Use social media, rent up your places or provide prospects (for a fee).

Ready inventory is low. Detroit has very little inventory for sale. It has the lowest inventory since the beginning of the Baby Boomer generation. When is the last time you’ve seen a for sale sign? The good news is that properties would instantly rent/sell at the right price. When you acquire properties, make sure you bring them up-to-date and get them 100% ready (not 95% ready). Some tips: use two tones for painting rooms, combine living rooms and kitchens by knocking down separating walls, upgrade baths (vanities are inexpensive), paint white ceilings a darker color, provide blinds and clean the windows. Tenants and homeowner will pay 25% more for ready to move-in properties that reflect 21st century mindset – Less walls and open layouts!

Interest rates are low. Interest rates are historically low which allows for very affordable payments as well as upward pressure on market values. Your monthly payments are more important than the overall price you pay. Take advantage of low interest rates. Get as high of a mortgage as possible with the longest amortization period as possible. Refinance free and clear assets and put the cash to work in the marketplace by buying more real estate.

Off market inventory is substantial. Detroit has tens of thousands of vacant properties just waiting for someone to look up the owner, make a deal, and then get them ready for rent or sale. Find the deals before they are listed. This will allow you to structure deals to take cash out at closing. After they are listed, the option of taking cash out at closing is more difficult because the price is locked in. Remember there is great buoyancy in the marketplace and appraisers are most influenced by purchase agreements between an arms-length buyer and seller. Make sure you use Purchase Agreements like the one we use (available at stratheracademy.com in the student corner) and follow the rules. What are these rules? 1) Always agree on the Seller’s net price first and then ask them the question: “Do you care how I structure the deal so long as you get the net price we agreed on”; 2) make the price as high as possible and build in seller concessions (repairs, fees, closing costs), protecting market values in the community and allowing you to take cash out at closing. As a guide, consider acquiring Strather Academy’s Home Study Course to fully understand the step by step chronology so you do not made a mistake.

HUD, Fannie Mae, and the banks are still low-balling prices. HUD and Fannie Mae are now selling huge inventories in the neighborhoods. Earlier, they did not want to depress prices so they held back, but now there is a floodgate of homes being offered at very low prices-- get ready! Get on HUD’s website asap (www.hudhomesusa.org). When you do, i) be the first to respond, ii) have proof of funds or an approved mortgage commitment ready iii) offer cash even if you are going to get a mortgage iv) have 30-45 business days for inspection, allowing you time to get the mortgage. Remember it is easier to take cash out with HUD if you use an LLC.

Zip Codes in Detroit are exploding. Certain Zip Codes are appreciating 500 to 1,000%; for example, the zip code 48201 in Detroit held the 2nd highest poverty rate in Michigan in 2013 at 48.93%. That zip code known as “Midtown” now holds the highest appreciation rate in the United States over the last 2 years. 48201 is not the only Zip Code on fire. 48206, 48207 and 48215 are some of the trending Zip codes with ridiculously high appreciation rates. Just checkout Zillow! You can almost close your eyes and hit a home run… but don’t. To catch this wave, i) ride the streets in hot zip code areas, and find the deals and repeat steps in Paragraph i above), ii) be the first to respond to any new listing but do not pay a high price,

Apply for pre-approval even with a low credit score. Did you know you can purchase a new home with a credit score as low as 525? Consider what Professor Brown has to say:

“Having a 525 credit score does not by itself disqualify you from getting a mortgage since FHA does allow this, and contrary to popular opinion, (usually from people who have never attempted one) these can be closed.Having said that, there is a narrow range of people who will qualify and the actual credit score has little to do with it. What is in the report causing the low credit score is far more important. The best candidate for these programs are those with medical derogs, clean credit history for the last 12 months, low debt ratios and good reserves. Those who fit the criteria find it's not hard to get financing at all. And no, that's not a contradiction to say not many qualify, but of those that do, it's very easy to close”.

Detroit has one of a kind federally approved mortgage programs. Speaking of mortgages, Detroit has the Detroit Home Mortgage Program which will create mortgages up to $75,000 over the current market value. Wow! And guess what? They have over 100 pre-approved buyers waiting to purchase homes and one only needs a 600 credit score to qualify!

Go to sarealestateapp.com and get Strather Academy App or attend a free Strather Academy seminar to learn the secrets of benefitting from this program or just go to www.detroithomemortgage.org.

So now that we found love what are we going to do with it? Put down the knitting, the mop and the broom and come to the cabaret! In other words, set aside whatever you are doing and learn how to harvest these golden opportunities for yourself, your family and your future. What would you do with an extra $50,000 yearly or an extra $5,000 monthly cash flow? Would you a) pay off all student loans, b) go on a cruise, or c) get married to the one you love and who loves you even more now?

Take action:

Get sarealestateapp.com free

Join Strather Academy Master Mind Group

Attend a free Strather Academy Seminar

Acquire the Home Study Course and get started

Take the 12 week Quick Start Program

Listen to the Herb Strather Show on Wednesdays at 11am at detroittalkradio.com

$700 Invested Fetches $9801 Return

This was the last house our students purchased in the a previous tax auction. The property was identified by a member of our staff, who was participating in the Wayne County auction for the first time. It was a great looking house located on a tough block and we snagged it for $500 dollars. Early indications suggested that this deal was going to be a loss, as the tenants missed several appointments and wouldn’t answer our phone calls. We placed the property on the back burner and after months of non-payment we moved forward with eviction proceedings (which cost use about $200 dollars). Once we received a judgment in our favor, the tenant chased us down asking for a meeting. We ended up negotiating a lease option for 28 payments of $350/month, for a total of $9800 dollars. Once 28 on time payments have been made we’ll sell them the property for $1 dollar. They didn't miss a payment.

On August 2, 1994, Detroiters voted overwhelmingly for Riverboat and Greektown Casinos. The story leading up to the vote is historic. Between February 28th and March 15, 1994, I collected enough signatures to qualify my “Riverboat Casino Initiative” for a place on the August ballot, but I could not have done this without the homeless. This is the story of how the homeless helped to create the commercial casino industry in Detroit.

In February 1994, something weighed heavily on my mind.Namely, I watched the Windsor temporary casino being built from my riverfront window, and I read about the proposed off-reservation Indian casino to be built in Greektown.The only problem was that the Canadians made it illegal to hire Americans; the Indian proposal required Indians to be hired first. This left Detroiters with only one role to play:to bring in their money. I was not happy about this!

On February 28th, I attended a community meeting with about 20 Optimist members at MLK High School. Dr. Sneed, former DPS Superintendent, was having a rally promoting safe streets for our kids. There was a young elementary student that did a wonderful performance that left me in an emotional state. I left thinking, “If I do not do something, her life, and those not yet born, will be changed because Windsor and the Indian casino would suck Detroit dry.” It was that night that I decided to put an initiative on the ballot to permit commercial casinos. I had my work cut out for me.I had to collect 7,700 signatures by March 15, 1994 by 4:30 p.m.

I typed my own Riverboat casino petition using Greektown’s as a guideline. I typed for 10 straight hours and created what, I thought, was a perfect petition. The initiative provided Detroit with 55% of the casino revenue tax. No other city in America had such a sharing ratio with the state.We would use that money for community development, public safety, anti-gang, youth development and senior citizens support. The next day I printed out some copies and started getting signatures. I will never forget it. The first signature was Coleman A. Young. He was having a meeting with Don Barden at the Riverfront Café. Coleman said, “Hell, I’ll sign the damn thing. Good luck”. Don would not sign because he said, “It was site specific, and he did not support that”.

I collected several hundred signatures that day before I decided to get legal assurance that my petition was legal; that’s when I got the bad news. My font size was wrong, the language not quite right and the petition was not pre-approved by the County Clerk.Furthermore, it could take quite a bit of precious time to get the clerk’s approval. I only had 13 days left before March 15, 1994.

A young lawyer from Lewis and Munday, named Taylor Segue, quickly tightened up the petition.We decided to go forward without pre-approval from the County Clerk.For the next few days, I hired everyone I could to get signatures.Most of those gathering signatures lasted a day and quit.They did not have the thick skin to accept rejection or being cursed at from people upset about the idea of a casino. I was collecting signatures for almost 18 hours a day. I would talk to anyone who would listen.One evening Bobby “Blue” Bland was having a concert at the Fox Theater. I began trying to get signatures from the crowd going to the concert.Most people were rushing past to get in, and I was being ignored.At that point out of desperation, I yelled at the top of my voice, “WILL SOMEONE PLEASE SIGN MY RIVERBOAT PETITION!!!” It worked. I got lots of attention and lots of signatures. However, by the 8th of March I had a grim reality check:I only had 2,200 signatures and, for sure, I was not going to get 5,500 more signatures within a week from the crowd I had helping me. They were uncomfortable with rejection.What was I to do?

This is when history happened.

At about 1:30 P.M. a man in an old suit came up to me and asked if I needed help. I asked him if he was a registered voter and he replied “yes”, but he did not have his voter registration card in his possession.

I told him to stay close. I hired him to work, handling the west entrance of the City County Building as I handled the north entrance. We worked for several hours, and at the end of the day he made $65. He then admitted that he was homeless, and that he was going to get a good night’s sleep and a great bath for a change. He asked if he could bring along a friend or two tomorrow. The answer was a resounding YES!

The next day he brought two other men. The only problem was that they were not prepared to approach the public.They smelled and needed clothing. I took them to National Dry Goods on 12th street and bought them decent clothes. The owner/manager saw what I was doing and whispered something in the cashier’s ear. She then took 50% off the price; I nodded in appreciation. That day we collected over 50 pages or 1,000 signatures. I was beginning to feel better.

The following day I hired another six homeless people and went through the same procedure.I was now collecting about 100 petitions a day equivalent to 2,000 signatures per day. I found out that homeless people are very smart and resilient. I recall one guy, somehow, did not get paid.When I got home and stepped off the elevator on the 29th floor of Riverfront Towers, I was shocked to see him there asleep at my front door. He somehow figured out where I lived and got through all types of security to get paid.

On March 15, 1994 at 3:30 pm, I headed downtown to turn in more than 14,000 signatures – enough to quash any recount and qualify for a place on the August 2, 1994 ballot and a place in history.

The one other thing that impressed me about the homeless is their tenacity. Everyone else quit except them. They delivered the signatures that created the casinos. They are used to being rejected, yet they never, ever quit.

Now that it is known, perhaps casino employees and the casinos themselves will help in efforts to support the homeless.

They have earned their place in Detroit’s casino history, and the right to expect support from an industry that will not hire them, but would not exist without them.

In 1960, I was came home crying because I got beat up by a bully outside my front door . My mom made me shut up and go back and punch the bully in the nose as hard as I could. It succeeded! The bully grabbed his nose and went home. The next day I was famous at my school. I beat the bully.

Later in life

In 1980, before I was 30, the same thing happened. But this time, the bully was the economy. We were in a recessionwith 20% interest rates and I had millions borrowed out on credit. I almost got wiped out before I got started good. However, my past lessons and experience that my Mom taught me still resonated with me. I transferred my property management business and rolled up my sleeves and went to work. By 1984, I had closed more than $150 million in tax shelter deals. I made a few million in commissions and I was back in the groove. I confirmed “When the going gets tough, the tough gets going.”

Today

The boogy man is back. This time as the greatest ever recession. The good news is that I have been to a similar movie before, so I know what to expect. We have to deal with the issues and opportunities, or they will deal with us. Today we have the chance to buy real estate for 15% on the dollars and we can make money without having cash, credit or collateral. So why are we crying? After all, the most valuable part of a real estate transaction is finding, underwriting and structuring the deal for maximum value.

You

Have you been crying about your house in foreclosure? Before the tears start rolling to tough, why not find out if you can buy the mortgage back for 15 cents on the dollar? Or even $500 in the case of a property tax auction.

Most foreclosures today are big blessings. It allows the occupant or the titleholder to purchase the property for the discounted price at the Sheriff sale or to bid and buy the property at a public auction for as low as $500.00. When property is bought at an auction, all of the liens and mortgages disappear, so long as you do not buy it back in the same name and accidentally cause it to become a redemption. The best advice is to take an expert with you (like yours truly).

Believe it or not

In 2011, my class bought 5 houses for less than $4,000. All the houses had homeowners that did not even bother to bid $500 to buy their own home back… go figure?

Was it because they were sleeping and did not know that they could buy their house back?

How about you? Are you acquiring assets now or sleeping through the greatest opportunities you might ever have? If the latter is true, then perhaps you should consider putting down the mop and broom, and empower yourself with real estate knowledge that will allow you to succeed.

If you asked 10 people what a typical Detroit home is worth from a photograph, you would get 10 different answers ranging from say, $5,000 to $100,000. Each of them would be able to justify their response. This would be the result of what we call buoyancy in the marketplace…

Why so much buoyancy?

Well, there are a lot factors to this answer. Scandals and subsequent bankruptcies have lead to thousands of foreclosures since the great recession. The federal forgiveness programs allow for banks to sell low and then be fully reimbursed as a Quid Pro Quo for not going after homeowners who defaulted. There is also the great Millennium migration back to Detroit, fueled by Dan Gilbert’s focus on redeveloping Detroit, which sky rocketed values.

On top of that, there is HUD and Fannie Mae discounting homes every day. Fannie Mae selling at deep discounts have depreciated Detroit’s property values. Fannie Mae and HUD seems to sell everything for 50% of what the last comps were, thus pushing prices down. Foreclosure prices on the other hand are beginning to rise, because banks are no longer getting reimbursed – THANK GOD!

The most starling example of this is a house on Dale Street just north of Puritan, less than 200 feet inside the city. In September 2017, a willing buyer offered $55,000 and wanted to assume an existing mortgage in the amount of $50,500 and pay $4,500 down. The bank said no, (I guess the bank thought the property was overpriced and wanted to take advantage of the reimbursement program). The bank did agree to a $25,000 short sale. Everyone was happy. Then in October, the bank asked the seller to reimburse them for the shortfall. Wow! Did something happen between September and October? I say yes. I speculate that the Trump administration terminated the bank reimbursement program at the end of the fiscal year (9/30/17) and this deal was caught in-between. Does this mean that banks will now stop shorting property values and creating artificial comps? And will HUD do the same thing and let arms- length agreements rule? We will see…

With all of these different factors simultaneously at play, no one in their right mind can say for sure what the hell a piece of property is worth. I got an appraisal the other day on a 2,800 sf house on Atkinson near 12th street. The “as is” value came back as $30,000 but the after repair value (needing $35,000 in improvements) is valued at $195,000. I now have a purchase agreement on it for $220,000 that gives the buyer a $30,000 repair credit. Go figure….. To further add to the equation, a 2,900 S,F. house around the corner on Edison is selling for $335,000.

So, what is the house on Atkinson really worth? You can see how there is a reasonable answer anywhere between $30,000 and $250,000. This still doesn’t fully answer the question though. What is real estate really worth in Detroit. Let me answer it this way and you can figure this out yourself.

I closed on a duplex on Evergreen near i-96 freeway for $65,000. The comps showed $40,000 but the buyer really wanted the deal and ignored the comps. At the closing I asked to see the appraisal and was somewhat shocked that the value was exactly $65,000. The bank said AND the title company representative confirmed “99% of the house come back for the exact sales price”.

So now you have your answer. The value is generally what 2 people agree on, in other words the purchase agreement rules, but only if banks and HUD get out of the way.

Under the new tax bill just passed by Congress, Pass-through Entities offer a generous tax break for independent workers and entrepreneurs. Are you an independent worker getting a 1099 instead of a W-2? Do you get paid individually or do you have a LLC that gets the checks? If the former is true, then you may not have been taking advantage of tax breaks that could of accrued to you. The new tax bill now offers even greater incentive for good structuring and tax planning. The new tax law (unless modified) will offer a maximum 29% tax rate instead of the current 39.6% tax rate; in order to take advantage of this, you have to form an entity and get paid through that entity. This makes sense anyway for balance sheet building and tax deductions with or without the new tax break.

To put ice cream on top of the cake you might consider structuring the LLC as a Family LLC Consider these benefits;

A LLC can shield you from liability in the event of a lawsuit

A LLC offers you the opportunity to deduct business expenses such as automobile costs, office space in your house, lunches, clothing, etc.

Profits in an LLC gives you the opportunity to value your business rather than just earn a large compensation as a 1099 service provider. To clarify, suppose you earn $120,000 a year providing computer services to a major company. The $120,000 compensation does nothing for your balance other than savings if any. Now suppose you form an LLC and let the LLC offer the services and you draw out $70,000 a year and allow the LLC to make a profit of $50,000 per year. The LLC market value at a 20% cap rate is $250,000. If you accept the funds as an individual you would only get a $50,000 balance sheet credit which is not capitalized.

Income from the LLC offers a pass through tax rate of 29% versus a 39.6% tax rate as an individual.

A LLC can shield you from being sued and assets confiscated. Your children can own all or the huge majority of the membership interest and you can have a Participating Promissory Note and take a % of the cash flow.

The LLC offers you flexibility when selling the business or asset. You can sell the membership interest OR the asset.

Now consider the added benefits of making it a family owned LLC. Suppose you have 2 children ages 4, 15 and say 17 and they help you in the business. Your 4 years old appears in commercials promoting your business and you teenagers actually help out with social media marketing copying and packaging and delivering the deals, etc. Say they each own 20% and you own 40%. The profits mentioned above would be allocated $10,000 to each of them and $20,000 to you. You will save tons of taxes because they are in a much lower tax bracket than you. If that is their only income there should be no taxes payable by them whatsoever while you will have to pay 29% of whatever you get.